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Raymond James: Gas Price Gains to Be Short-Lived

Routine U.S. nuclear plant maintenance, exacerbated by Japan's plant outages, lifted U.S. natural gas markets in late April and helped to take out an estimated 3 Bcf/d year/year (y/y) of gas supply, but the looser market won't last long, analysts with Raymond James & Associates Inc. said Tuesday.

J. Marshall Adkins and his colleagues are continuing to maintain their bearish outlook on domestic gas markets for 2011 because of a "belief that U.S. core supply growth will continue to overwhelm storage limits." The analysts in mid-May predicted that domestic gas supplies would be up by an average 4-5 Bcf/d y/y in 2011, which could cause prices to drop this summer (see Daily GPI, May 17).

Raymond James' 2011 forecast for U.S. gas prices continues to average $3.75/Mcf, even though the analysts acknowledge that prices "have remained resiliently" above their earlier predictions.

Harsh winter weather was blamed for the bump in gas prices earlier this year. As winter weather eased in April the market again was "looser," with an additional estimated supply of 2 Bcf/d on a y/y basis. Soon thereafter, however, "the market completely flipped" to 1 Bcf/d tighter, the analysts said.

Why? The "culprit" appears to be the "sugar high" from domestic and Japanese nuclear outages, said the analysts.

The U.S. nuclear grid routinely undergoes seasonal maintenance every shoulder season, and natural gas power often fills the void, they noted. This year, however, the domestic grid was scheduled for a larger seasonal downturn, which was "likely exacerbated by the nuclear disaster in Japan."

In addition, the U.S. nuclear fleet was undergoing planned maintenance when massive tornadoes swept through Alabama, damaging two units at Browns Ferry Nuclear Plant (see Daily GPI, May 2).

Twenty-eight percent of the U.S. nuclear fleet already was down. The two Browns Ferry units were two of 42 plants that were either offline or producing at less than 100% of full power, according to NGI's NRC Power Reactor Status Report. The 42 plants' generation represented a loss of 28,250 MW out of total U.S. capacity of 98,564 MW at 104 facilities.

According to the Raymond James team, most of the domestic nuclear capacity "should be back online by July," which would wipe out the 3 Bcf/d of y/y gas supplies that loosened the gas market earlier this year.

"If we're right," they asked, "are we headed for yet another late-summer collapse once the nuclear buzz wears off?"

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